RAPAPORT... The global diamond and jewelry industry may have felt
nervous about the US proposal earlier this month to place $50 billion-worth of tariffs on Chinese goods. The response from the People’s Republic last
week — threatening its own duty hike on imports from the US — raised the stakes
higher still.

However, diamond traders need not worry yet, senior figures
in the sector have predicted. Precious stones and jewelry are not included in
either country’s list of targeted products, and are unlikely to be the subject
of tariffs in the near future.

President Donald Trump’s actions focus on products that both
the US and China export in huge quantities, explained Colin Shah, vice chairman
of India’s Gem & Jewellery Export Promotion Council (GJEPC) in an interview
with Rapaport News Tuesday. Diamond cutting is such a small industry in
the US that the state will probably not bother sheltering it from foreign
imports, Shah predicted.
Of little import

US government figures show the nation shipped $21.62 billion
of polished diamonds globally in 2017 — a figure dwarfed by, say, the $99
billion aircraft trade, according to CNN. China only exported about $1.91
billion of polished in 2016, according to the latest data from the China
Customs Information Center. US imports of metal parts for jewelry are also
minimal.

“The US government is trying to protect domestic
manufacturers,” Shah said. “In the case of diamonds, the US doesn’t produce
[many] diamonds, so we don’t believe there will be any tariffs.”

What’s more, American consumers would be among the chief
victims of any US duties on diamonds or jewelry, as prices would rise, he
pointed out.

Jewel duel

Tariffs on China would barely impact its diamond trade as
the country gets most of its diamonds from outside its borders, and doesn’t
export many of them, noted Julius Zheng, vice president of the Shenzhen Rough
Diamond Exchange.

Still, any US tariffs on Chinese jewelry, however unlikely,
would hurt the Asian country’s export trade. China, especially the Guangdong
province, has a large number of factories that manufacture jewelry using
silver, gold or platinum for large US brands.

“If the US imposed tariffs on jewelry, it will impose
negative effects on these factories, depending on the rate,” according to Zheng. “The
tariff will also be transferred to US consumers.”

The main beneficiaries in that case would be Indian
manufacturers capable of filling the gaps in the market, Shah explained. India
— and China at the moment — are both subject to a US duty rate of about 6% on
imports of jewelry and jewelry parts, he said.

Beijing’s retaliatory tariffs do not currently include
diamond- and jewelry-related goods, Zheng explained. If they were to in the
future, the impact on US-China trade would be slight, he argued. Western brands
that import some of their jewelry to China for local retailing would find it
more expensive to do so if tariffs were higher. However, this is a small sector
of the Chinese jewelry market, he noted.

Most jewelry sold in China is manufactured domestically, while
most diamonds come from India, Belgium or Hong Kong, he pointed out.

What of Hong Kong?

Hong Kong operates under a separate trade system, and its
free port means it frequently benefits from high tariffs in other countries. The
municipality, which often serves as a stop-off point in transfers of goods
between countries, could lose business if Chinese exports to the US decline as
a result of Americans tariffs.

However, given the small number of diamonds China produces,
any tariffs would probably not damage the municipality’s gem business,
according to Lawrence Ma, president of the Diamond Federation of Hong Kong,
China. Jewelry may suffer more, as a lot of Chinese-made items go through Hong
Kong’s port, Ma noted.

Even so, this is mainly theoretical, as the chances of such
tariffs are low.